Zeek receiver seeks first round of fees, expenses

Published: Thursday, November 15, 2012 at 10:58 a.m.

Last Modified: Thursday, November 15, 2012 at 10:58 a.m.

The receiver for Zeek Rewards is requesting more than $850,000 for him and his team for about 45 days of work.

In his first interim application for fees and expenses, court-appointed receiver Kenneth Bell requested about $768,102.23 for him and his counsel at McGuireWoods LLP of Charlotte. The receiver also requested about $85,389.06 for a retained forensic accountant and database consultant, FTI Consulting, for its work in the case.

Bell, his constituents at McGuireWoods and FTI, the three entities that make up the “receiver team,” have been working since mid-August to recover money connected to Zeek Rewards. The company, headquartered in Lexington under the parent entity Rex Venture Group LLC, has been charged by the federal government of operating one of the densest Ponzi schemes of all time. The company’s owner, Lexington resident Paul Burks, has already settled securities fraud charges filed by the U.S. Securities and Exchange Commission, without admitting or denying the agency’s accusations.

The receiver is requesting compensation and reimbursement from Aug. 17 through Sept. 30. During that period, Bell said he and his team worked a total of about 2,226 hours on tasks ranging from operating the receivership estate, to investigating the company’s financial condition, to analyzing “terabytes” of information, to locating and identifying foreign bank accounts connected to Zeek Rewards or Rex Venture Group.

Court records show that Bell, himself, charged an hourly billing rate of about $612 per hour and worked about 189 hours during the compensation period, totaling about $115,790. Bell, as well as his counsel of about 30 McGuireWoods attorneys, partners and paralegals, charged 15 percent lower than their normal rates, according to court records.

FTI, the company retained as the forensic accountants, litigation and database consultants for the case, expended about 200 hours during the compensation period from August to September. The amount the company is seeking includes a discount of about 23 percent from the company’s normal rates, Bell said.

According to rules set out by the SEC, the receiver and his team are entitled to “reasonable” compensation and expense reimbursement from the entire receivership estate.

In his application filed Wednesday in U.S. District Court in Charlotte, Bell said both McGuireWoods and FTI all discounted their rates after realizing the “public service nature” of the case.

Bell said he believes the compensation requested is discounted and is beneficial to the overall estate. He asked the court, when evaluating the request, to consider the highly complex nature of the case, which he said required the investigation of an alleged fraud that included about two million affiliates and one million investors throughout the world.

“The professional services were performed expediently and efficiently,” Bell said. “Accordingly, the receiver and (McGuireWoods) submit that the compensation requested herein is reasonable and warranted in the light of the nature, extent and value of such service to the receivership estate and all parties in interest.”

Bell, who has said he intends to make all victims as whole as possible, has also indicated that this could be a lengthy process. Bell and the receivership team will make applications for compensation and fee reimbursement quarterly, according to court-ordered guidelines.

Receivership has been a lucrative practice for several court-appointed officials and trustees in recent years. The New York Times reported earlier this year, for instance, that Irving H. Picard, the court-appointed trustee responsible for recovering funds in the Bernie Madoff Ponzi scheme, charged $850 per hour and has personally taken in about $5.1 million.

Launching in 2011, Zeek Rewards was one of the first penny auction-based companies to present profit-sharing opportunities to its customers. Its users, who were referred to as affiliates, essentially invested in the program by purchasing large quantities of bids for the penny auction site Zeekler.com, which was also operated by Rex Venture Group. To earn a profit, affiliates were required to give those bids away to new customers and post a daily advertisement for the site online. For buying bids, giving them away and placing an ad, affiliates shared in the company’s daily net profits through “rewards” — bonuses they could compile over time and eventually turn into cash.

Affiliates could also earn commissions with every friend, family member or average Joe they signed up. The longer an affiliate’s “downline,” the more money there was to be made, something the SEC called classic pyramid style.

The SEC, which issued a civil enforcement action against the company Aug. 17, alleges that the money from new Zeek Rewards investors was simply financing the payouts for higher-up affiliates. About 98 percent of Zeek Rewards’ total revenues, and subsequent payouts to its affiliates, were comprised of funds received from new investors, according to the SEC’s complaint.

So far, Bell’s investigation has identified about 2.2 million unique Zeek Rewards users, and he says about 1 million of those users invested money in the program.

While the majority of Zeek Rewards affiliates lost money, including some who sent in cashier’s checks just hours before the SEC’s action, others profited heavily. Bell estimates that more than 100,000 affiliates made money on the program.

Bell sent out more than 1,200 subpoenas to affiliates who “took out more than they put in” last month, asking the profiteers to surrender their gains or face legal action.

The receivership team has collected more than $300 million since the investigation began. Bell has estimated that the failure of the company could result in losses up to $600 million.

Bell, who filed his preliminary liquidation plan Oct. 8, was scheduled to submit his final plan Thursday. However, the receiver motioned the court to extend the deadline one month, until Dec. 17, so his team could continue to sort through hundreds of boxes of documents and more than 10 terabytes of electronic data.

“The defendants’ books and records were inadequate or incomplete, and the receivership team is still in the process of reconstructing over 18 months of Zeek Rewards financial information, involving more than 931 million transactions,” Bell said in the motion.

Nash Dunn can be reached at 249-3981, ext. 227, or at nash.dunn@the-dispatch.com.

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